A firm produces a product to sell to
consumers. Simply stated, the goal of the firm is to maximize
profit. Now, consumers have different utilities with respect to this
product --- that is to say, some people may pay a lot for it, some people may
pay a little and some people may not want it at all. If the firm is forced
to set a single price, it will only be able to sell to those who are willing to
pay that price and consequently lose the others.

In an ideal business model, the firm would like
to charge each consumer the maximum price that the person is willing to
pay. Compared to the single price situation, the firm is now able to
extract more from those who are willing to pay more and also include those who
are willing to pay less. Unfortunately, for certain types of products, it
is impossible to implement this form of price discrimination, as in the case of
the ticket box office at the cinema where one would expect a single price to be
posted (except possibly for discounts to senior citizens or minor children).

In the case of films, price discrimination is
practiced over space and time. A movie made in one country will be shown
elsewhere with ticket prices charged at levels that are commensurate with local
standards of living. More significantly, a movie is released through
different distribution systems at different price levels at different moments in
time. This strategy is known as 'windowing.'

Owen and Wildman shows the following release
window for U.S. movies in the late 1980's:

Release Window

Months from initial release

Theaters

0 - 4+ months

Overseas theaters

4 - 18+ months

Home video

6 - 30+ months

Pay-per-view cable television

7 - 9 months

Overseas home video

9 - 24+ months

Premium cable

12 - 36+ months

Broadcast networks

36 - 60 months

Overseas broadcasters

48 - 60 months

Basic cable

66 - 72+ months

Syndication to local television stations

72+ months

For the consumer, the price of the product will
drop over time, from the maximum of the $10 single person ticket down to the
free (interrupted by advertisements) television broadcast. Therefore, the
consumer can assess the utility of the movie to him/her against the time delay,
and make a personalized decision.

For the film owner, there is a myriad of factors
to consider in order to come up with the optimal windowing combination.
Owen & Wildman listed these six factors:

Differences in the per viewer price earned in
the different distribution channels

Differences in channels' incremental audiences
(i.e. differences in the number of new viewers they contribute to a
program's total audience

The interest rate as a measure of the
opportunity cost of money (i.e. a dollar earned today is worth more than a
dollar earned later, because interest can be earned during the time)

The extent to which viewers exposed to a
program through one channel are eliminated from the potential audience in
other channels

Differences among channels in their
vulnerability to unauthorized copying

The rate at which viewer interest in a
program declines following its initial release

In practice, most film owners follow the same
windowing schedules since consumers have developed certain standard expectations
by
now. Occasionally, some of them may forego the first run in the theaters
due to difficulties in procuring broad distribution, and hit the video market
immediately.

We will now cite some survey data from the TGI
Mexico study. This is a survey of 6,200 Mexicans between the ages of
12 and 64 years old who were interviewed during late 2000 and early 2001.
Overall, 39% of these people said that they have attended a movie performance in
the past 6 months. The breakdown of the most recent occasion is as
follows: 8% within the last 7 days, 18% between 8 to 30 days ago, 9% between 1
to 3 months ago and 3% between 4 to 6 months ago.

The question that we are interested in is this
one: Does the fact that someone owns home movie delivery systems make
him/her less likely to attend movies? In the next table, cinema attendance
incidences hare broken out by ownership of three television technologies.
The numbers in this table shows that those people who own these television
technologies are in fact more likely to attend cinema.

TV Technology

% Attended cinema last 6 mos

% Last attended cinema last 7
days

% Last attended cinema 8 to 30
days

% Last attended cinema 1 to 3
mos

% Last attended cinema 4 to 6
mos

Cable television

59%

16%

30%

11%

3%

Satellite television

70%

22%

31%

8%

10%

Videocassette Recorder

48%

10%

24%

11%

3%

TOTAL

39%

8%

18%

9%

3%

Of course, cable and satellite televisions
service encompasses a variety of channel offerings; apart from films, other
program genres such as sports, cartoons, news, etc are also popular. In
the next table, we provide the breakdown for those people who are movie channel
viewers on cable/satellite television. Here, we should remember that HBO
stands for Home Box Office, and was originally envisioned to displace the cinema
box offices altogether. According to the data here, if anything, these people are even
more likely to attend cinema.

Viewed cable/
satellite channel
in last 7days

% Attended cinema last 6 mos

% Last attended cinema last 7
days

% Last attended cinema 8 to 30
days

% Last attended cinema 1 to 3
mos

% Last attended cinema 4 to 6
mos

Cine Canal

71%

28%

30%

10%

3%

Cine Canal 2

77%

40%

26%

8%

2%

Cinemax

62%

23%

30%

5%

4%

HBO

70%

24%

34%

11%

2%

HBO Plus

71%

32%

26%

11%

2%

TNT

66%

25%

29%

10%

2%

TOTAL

39%

8%

18%

9%

3%

According to Owen & Wildman, "until a
film is released on cassette, owning a VCR does not change a viewer's
willingness-to-pay to see the film in a theater." This is certainly
confirmed by the survey results here. Owen & Wildman goes on to say,
"the theatrical release draws equal fractions of viewers who own VCRs and
viewers who do not." The survey results here would extend this
further to the point where those who own television technologies are more likely
to attend cinema because they are more ardent movie lovers.